All to play for in bancassurance growth

Bancassurance services often fail to get through to customers who may have little knowledge of them. Photo: Shutterstock

Preliminary statistics from the Ministry of Finance has revealed that the total new premium revenues of life insurance companies in the first half of 2021 from the bancassurance channel reached more than $339 million, while the agency channel was around $595.7 million and other channels hit $17.4 million.

In addition to accelerating digital engagement across the customer journey, insurers have also been reinforcing cross-selling initiatives through bancassurance. Non-interest income growth will become the main driver and take unprecedented priority in banks’ income, and bancassurance is among the crucial elements, according to Viet Dragon Securities.

Bancassurance is seen to continue to grow much faster than the agency channel. At some insurance companies such as Prudential, Dai-ichi Life, Sun Life, MB Ageas, and FWD, new premium revenues from bancassurance in the past six months has increased equal to, or even higher than, revenues from agency channels.

So far in 2021, new premium incomes from Prudential’s bancassurance channel has surpassed the traditional agency channel, while that of MB Ageas nearly doubled the new premium fee from the agency channel. Sun Life Vietnam also reported its new premium income accounting for nearly 90 per cent of total new fee revenue.

The strong growth of the bancassurance channel with revenue similar to that of the agency channel also helped Dai-ichi Life rise to second among foreign-invested insurers in Vietnam regarding new premium fees in the first half of 2021.

By the end of the period, Manulife’s market share of premium income reached 19.1 per cent. The significant driving force for Manulife’s continuous growth is that the company had cross-selling insurance contracts with privately-held banks that have large customer data such as ACB, TPBank, Techcombank, and SCB, along with reputable foreign banks such as Shinhan Bank and ANZ, which helped speed up exploitation activities.

“There has also been significant investment in technology at the insurance companies in Vietnam, which explains why Vietnam’s life insurance market has experienced double-digit growth over the past few years,” said Naren Baliga, COO at Manulife Vietnam.

Tanh Tran, deputy head of Yuanta Securities, said that fee income is likely to be a core topline focus among the banks in H2. The current operating conditions emphasise that the Vietnamese banks must diversify their earnings sources to be less dependent on interest income.

“We expect upfront fee recognition from bancassurance exclusivity deals and bancassurance sales to continue providing support for banks’ fee income and earnings in the second half. In addition, we also expect a wave of renegotiated bancassurance exclusivity deals in 2021- 2022,” Tran said.

Southern-based lender HDBank is meanwhile allegedly in the process of renegotiating its tie-up with Japan’s Dai-ichi Life. Yuanta Securities also anticipated that Techcombank and VPBank would renegotiate their partnerships to get higher upfront fees that will probably be within the range of those of their peers.

VPBank is said to be dealing with AIA for a forthcoming exclusive bancassurance deal. If successful, the bank could bag a generous amount of upfront fees. MB Securities predicted this transaction to take place in 2022 at the latest.

VietinBank, on the other hand, is slated to receive upfront fees from monopoly bancassurance partnership with Manulife by the end of 2021 or in the first quarter of 2022 after Manulife completes the acquisition of Aviva.

Vietnam has traditionally been one of the top countries with the highest growth rate of insurance premiums in the world, with an average annual growth rate of over 9.3 per cent. Although continuously recording high growth, Vietnam has a relatively low market penetration rate of only 2.7 per cent by 2019 (non-life insurance is 0.8 per cent and life insurance is 1.9 per cent), much lower than other countries in the region (averagely at 3.3 per cent).

“We believe that the non-life insurance industry will quickly return to the average growth rate of 15 per cent as in the previous period, while life insurance will maintain a high growth rate of 25-30 per cent per annual,” said Khanh Do, analyst at Bao Viet Securities Company.

Despite the high growth rate, the market penetration rate of the bancassurance channel is modest, at only 19 per cent, much lower than the average rate of about 60 per cent in developing countries.

“The low rate lies in several reasons, such as limited products, customers having little understanding of products distributed through banks, and legal issues,” Do told VIR.

However, in the past few years, these problems have been gradually solved by insurance companies as well as banks, gradually increasing the efficiency of bancassurance. For example, the renewal rate through bancassurance was only 70 per cent by 2020, but has been increased to 80 per cent by 2020, and even 9 per cent for some companies, according to Do.